Voluntarism wrote:Getting off track, so will only touch on this briefly. Keynesianism requires Say's Law to be wrong and Keynes attempted but failed to prove that it is wrong. Say's Law (which is really a series of propositions) is by far a truism rather than a theory. Supply is demand because no demand can be met without supply and "demand" itself is essentially unlimited. Any "glut" is simply consumption by someone (the producer) who [b]thought they could trade their production for the production of someone else but it turned out they couldn't [/b]- ie people didn't actually want the crap you produced at the price you are asking for it. The only way to solve such a glut is to unemploy factors and destroy the capital that makes the crap people don't want at the price you're asking and redeploy it into things that people do want at the prices you're asking. This is the recession. You have to move supply backwards (ie stop producing crap) in order to move forwards. (Also, any generalised "hoarding of money" can simply be associated with the fact that people have a demand curve for money stock just like any other commodity.)
I absolutely disagree with that statement! It is true that recessions can happen because of misutilization of the factors of production (thus generating a decrease in investment), but it is myopic to say it is the only possible reason. The busts in the business cycle can also be caused by an increase of savings (which reduces consumption). Therefore, it is not only falling demand for capital goods by entrepreneurs that can decrease production, but also falling demand for goods by families. Keynes then criticized Say's Law on the basis of this perspective. It may be true than in THE LONG RUN supply = demand; but definitely not in the short run, since people may save more of the income (and thus consume less). In fact, Say's Law is fallacious from its premise that rational individuals won't keep their money in cash: "It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products." (J.B. Say, 1803: p.138-9)
That could've been the case in the past. Nobody could really trust any particular currency. However, in modern times, monetary stability has become one of the aims of economic policies. Evidently then, Say's law is not true at all times in all conditions.
Voluntarism wrote:Of relevance to the previous discussion is that Say postulated a situation where all costs of production are at last reduced to zero: "in which case, it is evident there can no longer be rent for land, interest upon capital, or wages on labour, and consequently, no longer any revenue to the productive classes." What will happen then?
What then, I say, these classes would no longer exist. Every object of human want would stand in the same predicament as the air or the water, which are consumed without the necessity of being either produced or purchased. In like manner as every one is rich enough to provide himself with air, so would he be to provide himself with every other imaginable product. This would be the very acme of wealth. Political economy would no longer be a science; we should have no occasion to learn the mode of acquiring wealth; for we should find it ready made to our hands.
Anyway, the simple point was that the government can simply redirect the stream of production and does not need to individually "fund" the supply it diverts because it's ability to demand the diverted goods is only possible if those same goods are actually produced in the first place (ie they cannot distribute flying cars to everyone until the capacity to produce flying cars for everyone exists - and once it can be produced then they can automatically distribute).
What an interesting quote by Say. I agree with him on this. What a beautiful world where everybody is able to have anything they want without exploiting others! The only bad thing is, even though capital can be made ubiquitous and labour can be done by robots (in this way, both factors of production would cost $0), as long as private property is maintained and we don't colonize another planet, then land can never be made accesible for everybody. It is too scarce, esp. when its distribution has always been unequal.
Maybe the State should be present there to expropriate lands and re-distribute them?